Minimum wage hike smells like teen unemployment


This summer, exasperated parents can take comfort that they’re not alone in wanting their teenage children out of the house and in the workforce. President Barack Obama does, too.

In a recent interview with Parade magazine, the president and first lady said they want their daughters to work in minimum wage jobs so they can understand that “going to work and getting a paycheck is not always fun, not always stimulating, not always fair.”

It’s a laudable sentiment. But for most teens — especially those who don’t have the president for a father — these entry-level opportunities are further out of reach due to minimum wage increases at the national and local levels.

Teens just weathered 66 straight months of unemployment above 20 percent — the longest stretch since the Bureau of Labor Statistics began tracking these numbers in 1948. A number of factors are to blame: a still weak-economy, for instance, and more competition for service-sector jobs from older job seekers. But past increases in the federal and state minimum wage also play a role.

The evidence from the last federal wage increase is instructive. Economists at Miami and Trinity universities analyzed the 40 percent hike that took place between July 2007 and July 2009. Even when accounting for the impact of the bad economy, they found that some 114,000 young adults lost job opportunities as a consequence of the policy. For the least-skilled teens with less than 12 years of education, this translated to a 12.4 percent drop in employment.

You don’t need a Nobel Prize in economics to understand why minimum wage hikes hurt a teen’s chance at landing a summer job. According to Census Bureau data, two-thirds of young adults work in the leisure and hospitality sector — hotels, restaurants, movie theaters — or the retail sector, such as in grocery stores.

These businesses typically have single-digit profit margins. They only keep a few cents of every sales dollar and can’t absorb a sizable increase in labor costs. Raising prices isn’t always an option either, as it could drive down sales from cost-conscious customers. Instead, businesses are forced to provide the same product at a lower cost. That means more self-service.

At some point, the labor cost equation encourages employers to invest in technology. Think of bagging your own groceries at a grocery checkout, ordering via a tablet computer at a restaurant, or even pumping (and paying for) your own gas. The technology might be convenient for the customer, but it’s a convenience that used to be part of someone’s job description.

Research from nonpartisan government economists suggests these trends will only accelerate if President Obama gets his way on the nearly 40 percent minimum wage hike he supports. For instance, the Congressional Budget Office estimates up to 1 million jobs will be lost if the minimum wage is increased to $10.10.

The young people losing these opportunities aren’t just missing out on summer spending cash. Entry-level jobs provide teens an “invisible curriculum” that includes the work ethic, skills and experience required for post-graduation employment. Teens who miss out are at a disadvantage. Research published in the Journal of Labor Economics shows that high school seniors with part-time work experience are earning 20 percent more on an annual basis six to nine years after graduation than their jobless counterparts.

The president’s interview demonstrates that he understands the value of an entry-level job, yet election-year politics have him supporting a policy that will put those jobs further out of reach. Many teens whose last name is not Obama and who were hoping for a summer job are already disappointed. With a $10.10 minimum wage, many more will have no choice but to stay home on the couch.

Michael Saltsman is the research director at the Employment Policies Institute.

 

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